Written by Ray Richman
Playing with interest rates is extremely difficult, especially in these complex times. So why not leave it to the experts who have a proven track record?
If you really want to take advantage of expected federal interest rate cuts through 2026, Cherry Hill Mortgage Investment Corp. (Nasdaq: CHMI) is an investment to consider.
Cherry Hill is a strategic dual-sleeve REIT with a fully hedged portfolio that combines mortgage servicing rights (MSRs) and residential mortgage-backed securities (RMBS). As of Q2 2025, RMBS made up 77% of total assets (excluding cash) and MSRs made up the remaining 23%.
The business model is inherently sensitive to changes in the market interest rate, which directly affects the valuation of the asset (providing upside potential in favorable market conditions). To manage related volatility, Cherry Hill actively manages interest rate risks and uses a natural hedging relationship between MSRs and RMBS.
Having fully understood the operating structure, CHMI expects to achieve a closer alignment between management incentives and shareholder interests. In addition, the reduced overhead should result in annual cost savings and Cherry Hill should be able to manage market conditions dynamically.
The strength in fundamentals is supported by a healthy dividend yield of 16.2% and expected growth in core earnings from $12.1 million in 2024 to $20.2 million in 2026.
There are plenty of opportunities to come as the Fed initiates its first rate cut of 2025, with many anticipating several more cuts between this year and 2026. For Cherry Hill, lower interest rates reduce borrowing costs, improve refinancing costs, and boost asset valuations.
More importantly, investors may have the opportunity to take a bite before the market takes notice, given Cherry Hill is currently trading at a discount across several key valuation metrics.
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